Reinsurance rates continue to climb but are close to the top of the cycle: Willis Re
Reinsurance rate increases continued for most major lines and territories during the June and July renewal periods, but the market is approaching the top of this cycle as it reaches a state of equilibrium.
That is according to Willis Re in its latest 1st View renewals report, which noted that many reinsurers had to accept firm order terms below their initial quotes during the recent renewals periods.
Reinsurers’ good first quarter results, generally low catastrophe losses, rising underlying reinsured premium volumes and positive investment trends moderated rate increases, Willis Re said. This trend was supported by the strong economic recovery from COVID-19, it added, and came despite reinsurers’ best efforts to maintain pricing momentum.
Capacity overall outstripped demand, but reinsurers resisted the temptation to compete for top-line revenue, Willis Re said, meaning capacity for poorly performing classes was constrained.
The report found that concerns over inflation and COVID-19-related loss developments had not impacted pricing, with flat or modestly rising rates for property renewals. Casualty risks saw less consistent changes to pricing and coverage, though they displayed a similar overall gentle upwards trend.
One exception was ceding commissions, which responded more directly to changes in the underlying rates and terms and conditions.
Momentum continued in the catastrophe bond market, which saw around $6 billion of new issues in the second quarter of 2021, outstripping all new cat bond capacity issued in 2019. Significant investment inflows have narrowed margins and encouraged new cat-bond cedants, Willis Re said.
James Kent, global chief executive officer of Willis Re, said: “The global reinsurance market is moving towards an equilibrium. Reinsurers, backed by resilient investors delivering an increasing capital base, are robust and well positioned to provide the long-term support their clients expect and need. These clients recognise the value of a stable and broad reinsurance marketplace, so have continued to grant rate increases in most instances.” Kent cautioned that the reinsurance market is now approaching the top of its cycle, though he said this is unlikely to be followed by a sharp and damaging decline in rates. “The market is likely to retain its discipline in order to maintain the balance it has achieved over the past couple of years, especially with the full picture of losses from COVID-19 and prior year liability lines still to emerge,” he concluded.